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Advance Topics in Change Management
Lecture 11: Organizational Size, Growth and Decline
Objectives
• To consider how the size of an organization affects its structure.
• To explore the ‘organizational life cycle’.
• To examine the need for bureaucracy as a means of control in large organizations.
• To explore ways in which organizations can be revitalized.
SIZE AND STRUCTURE
• Increasing number of employees leads to:– Increasing formalisation of procedures– Increasing role specialisation– More delegation to senior managers
• And to:– Proportionately fewer top managers but more
professionals– Especially in organizations with between 100 and
2000 employees
An Example of Moving from Stage 1 to Stage 2 and then to Stage 3
April 2003 Development of wave-energy device begins• Researchers at Queen's University Belfast begin developing Oyster wave
power technology.
February 2005 Aquamarine Power established• Aquamarine Power is established to commercialise Oyster wave power
technology.
October 2007 Aquamarine Power joins forces with SSE• Scottish and Southern Energy, a large UK utility firm, buys a stake in
Aquamarine Power.
August 2008 Appointment of management team• Aquamarine Power appoints an experienced management team led by CEO
Martin McAdam.
August 2010 Company expands to about 100 employees• Divisional managers (different engineering functions, manufacturing, marketing)
appointed
CHARACTERISTICS OF DEVELOPMENT STAGES I
I II III IV
ENTREPRENEUR’L COLLECTIVITY FORMALIZATION ELABORATION
CHARACTERISTIC NON-BUREAUCRATIC
PRE-BUREAUCRATIC
BUREAUCRATIC DECENTRALIZED BUREAUCRATIC
STRUCTURE INFORMAL, ONE-PERSON SHOW
MOSTLY INFORMAL SOME PROCEDURES
FORMAL PROCEDURES DIVISION OF LABOUR ADD NEW SPECIALITIES
TEAM-WORK WITHIN BUREAUCRACY, SMALL COMPANY THINKING
PRODUCT/SERVICE
SINGLE PRODUCT/ SERVICES
MAJOR PRODUCT/ SERVICES
LINE OF PRODUCT/ SERVICES
MULTIPLE LINES
REWARD AND CONTROL SYSTEMS
PERSONAL, PATERNALISTIC
PERSONAL, CONTRIBUTION TO SUCCESS
IMPERSONAL, FORMALISED SYSTEMS
EXTENSIVE, TAILORED TO PRODUCT AND DEPARTMENT
CHARACTERISTICS OF DEVELOPMENT STAGES II
I II III IV
ENTREPRENEUR’L COLLECTIVITY FORMALIZATION ELABORATION
CHARACTERISTIC NON-BUREAUCRATIC
PRE-BUREAUCRATIC
BUREAUCRATIC DECENTRALIZED BUREAUCRATIC
INNOVATION BY OWNER / MANAGER
BY EMPLOYEES AND MANAGERS
BY SEPARATE INNOVATION GROUP
BY INSTITUTIONAL’D R&D DEPT
GOAL SURVIVAL GROWTH INTERNAL STABILITY, EXPAND MARKET
ENHANCE REPUTATION
TOP MANAGEMENT STYLE
INDIVIDUALISTIC, ENTREPRENEUR’L
CHARISMATIC, GIVES DIRECTION
DELEGATION WITH CONTROL
PARTICIPATION TEAM APPROACH
GlaxoSmithKline - Questions
• Read the FT article on GSK.
• Where would you place it on the organizational life cycle and why?
• How would you describe GSK’s reward and control systems?
• What ‘routines’ can you identify in the article?
• How are these related to its objectives?
GSK• Moving into elaboration (decentralized teamwork)
phase• The unit, a semi-autonomous business with an
entrepreneurial culture more typical of a small biotechnology company than a drug multinational, became their reference point for the creation in early 2001 of seven "centres of excellence for drug discovery" (CEDDs) in Europe and the US, of which Stevenage houses two.
• The heart of his strategy was the creation of "fully empowered, multi-disciplinary teams" of no more than 300 people - the size of many of the successful biotech companies with which GSK and its rivals have signed alliances. "I only rigidly control the headcount," he says. "300 is a human size where people can hold each other accountable."
GSK Moving into elaboration phase• However, CEDDs have made a big difference. The
first has been the ability to stop and start research projects more quickly than in the past, saving substantial research costs. "Before, we could be stuck for years with a project that was not viable, because the visibility was not there. The layers of management between me, the leadership team and the bench scientists have been compressed." A second change has been tighter integration of chemistry and biology, creating an approach dubbed "medicinal chemistry".
• In the same way, the CEDD co-operates closely with other parts of GSK. That has led to early co-operation as specialists from both sites discuss how far ideas developed in the laboratory are practicable for large-scale manufacture.
• each CEDD has its own finance director
GSK – Pay
• Extensive – presumably; tailored – hard to say:
• A final factor with the CEDDs is performance-linked remuneration, which accounts for about 20 per cent of the scientists' pay. But, as in any company, Mr Rapeport concedes that devising individual targets for team members is difficult.
• Social control
GSK – Routines
• Multidisciplinary teams – finance, manufacturing, chemists, biologists
• "nodes" on each floor where staff sit and are encouraged to sip free coffee while exchanging ideas. – Underpins idea that collaboration and
teamwork are important
• All to increase the speed of drug development
FIVE PHASES OF ORGANISATIONAL DEVELOPMENT I
1 2 3
BIRTH GROWTH MATURITY
FREQUENT INNOVATION BROADEN PRODUCT LINES FEW CHANGES
FINDING UNFILLED NICHES
INCREMENTAL INNOVATION
FOLLOW COMPETITION
USE OF MIDDLEMEN MARKET SEGMENTATION BROADER MARKETS
VERTICAL INTEGRATION LOBBYING LARGE
SMALL RELATED ACQUISITIONS ENLARGED OWNERSHIP
ONE, OR FEW, OWNERS INCREASED SIZE DIVERSE BOARD
SIMPLE, CENTRALISED BROADER OWNERSHIP FUNCTIONAL
RISK TAKING FUNCTIONAL SALARIED MANAGERS
INCREASED STAFF LESS DELEGATION
LESS RISK TAKING EFFICIENCY FOCUS
CONSERVATIVE DECISIONS
FIVE PHASES OF ORGANISATIONAL DEVELOPMENT II
4 5
REVIVAL DECLINE
MANY INNOVATIONS PRICE CUTS
DIVERSIFICATION OUTDATED PRODUCTS
NEW MARKETS SHRINKING MARKETS
MANY OWNERS NO CLEAR STRATEGY
DIVISIONAL RESTRICTED OWNERSHIP
CENTRALISED STRATEGY SIMPLE STRUCTURE
DECENTRALISED OPS. CENTRALISED
INCREASED SCANNING LITTLE SCANNING
RISK TAKING EXTREME CONSERVATISM
LITTLE INNOVATION
RISK AVERSE
Phases of Organisational Decline: Problems and Remedies
Problem phases Remedies
Blinded Good information
Inaction Diagnose and implement change
Faulty Action Correct mistakes and maintain commitment
Crisis Effective re-organisation
Dissolution None
Corporate Turnaround:Phases in Revitalisation
• Facing the crisis: retrenchment and cost cutting: reactive phase
• Reinvestment: focusing on core skills and investing in them for the future
• Rebuilding: reshaping the organisation around the new goals and skills for the future
Leadership in CorporateTurnaround Situations
• New Visions
• Mobilising Commitment
• Changing routines and structures to support the new strategy
Corporate Turnarounds: Fiat - Marchionne’s gamble and One Way
to Mobilise Commitment!• The reason for the unions’ anger was Mr Marchionne’s
[CEO of Fiat and Chrysler] great gamble. In a last-ditch attempt to fix Fiat’s loss-making Italian manufacturing base, he is promising to invest €20bn ($27bn) to double the country’s vehicle production by 2014.
• But it comes at a price: in return, Italian workers, who are among the world’s most protected, must adopt US-style flexible contracts. If they refuse, Mr Marchionne will pull Italy’s biggest private employer out of the country altogether. Industrial jobs seen as a birthright in Fiat’s home market could go to lower-cost sites in Poland, Serbia – where Fiat owns the vast former Zastava plant that once made the cheap Yugo car – or elsewhere.
• http://www.ft.com/cms/s/0/a9e53516-cbf5-11df-bd28-00144feab49a.html 30 September 2010
Other Ways to Prevent Corporate Decline
• Acquire emerging companies– But potentially risky
• Diversify into unrelated areas
• Radically alter the focus of the company
• Establish joint ventures/strategic alliances to learn!
REQUIREMENTS FOR LEARNING FROM JOINT VENTURES AND ALLIANCES
• Recognition of the value of joint venture as a mechanism of learning
• Willingness to collaborate openly, whilst being aware of ‘no-go’ areas
• Making learning an explicit goal• Focus on long-term learning, not short-term
outputs• Capacity to learn
– Transferability of the knowledge– Receptivity of employees to learning– Absorptive capacity of the firm– Previous experience in learning
Conclusions
• There are general patterns to the ways in which organizational structures change as firms grow.
• These are not, however, set in stone.• There are several ways in which
companies can try to fight off decline and dissolution.
• These may be easier to achieve in theory than in practice.